U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
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For the
quarterly period ended March 29,
2008
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
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For the
transition period from
to
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Commission File Number: 1-14556
THE INVENTURE GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
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86-0786101
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(State or Other
Jurisdiction of Incorporation or
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(I.R.S. Employer
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Organization)
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Identification No.)
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5050 N.
40
th
Street, Suite # 300 Phoenix, Arizona
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85018
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(Address of Principal
Executive Offices)
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(Zip Code)
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Registrants Telephone Number, Including Area
Code:
(623)
932-6200
Indicate by check whether
the Registrant: (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting
company
x
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(Do not check if a
smaller reporting company)
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Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act).
Yes
o
No
x
Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date: 20,186,213 as
of May 2, 2008.
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
THE INVENTURE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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March 29,
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December 29,
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2008
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2007
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ASSETS
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Current assets:
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Cash and cash
equivalents
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$
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4,785
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$
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494,918
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Accounts
receivable, net of allowance for doubtful accounts of $57,879 in 2008
and $29,161 in 2007
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9,187,679
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8,604,741
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Inventories
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10,714,633
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11,585,597
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Deferred income
tax asset
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899,290
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1,180,349
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Other current
assets
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676,919
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707,093
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Total current
assets
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21,483,306
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22,572,698
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Property and
equipment, net
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23,821,748
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23,436,752
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Goodwill
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11,589,988
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11,589,988
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Trademarks and
other intangibles
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2,811,492
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2,827,742
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Other assets
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272,387
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263,539
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Total assets
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$
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59,978,921
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$
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60,690,719
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current
liabilities:
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Accounts payable
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$
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7,392,112
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$
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6,001,136
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Line of Credit
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5,119,898
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7,452,309
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Accrued
liabilities
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4,100,528
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4,206,078
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Current portion
of long-term debt
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1,187,650
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1,181,888
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Current portion
of accrued costs related to brand discontinuance and other exit cost accruals
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97,229
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Total current
liabilities
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17,800,188
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18,938,640
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Long-term debt,
less current portion
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12,145,405
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12,445,383
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Interest rate
swaps
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372,030
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Deferred income
tax liability
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1,574,727
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1,574,727
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Total liabilities
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31,892,350
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32,958,750
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Commitments and
contingencies (Note 5)
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Shareholders
equity:
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Preferred stock,
$100 par value; 50,000 shares authorized; no shares issued or outstanding at
March 29, 2008 and December 29, 2007
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Common stock,
$.01 par value; 50,000,000 shares authorized; 20,186,213 shares issued and
outstanding at March 29, 2008 and December 29, 2007,
respectively
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201,863
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201,863
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Additional
paid-in capital
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29,390,338
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29,304,491
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Retained
earnings
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1,618,486
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1,207,189
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Accumulated
other comprehensive income (loss)
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(141,810
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)
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Treasury stock,
at cost: 1,345,798 shares at March 29, 2008 and 1,345,398 shares at
December 29, 2007
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(2,982,306
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)
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(2,981,574
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)
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Total
shareholders equity
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28,086,571
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27,731,969
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Total
liabilities and shareholders equity
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$
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59,978,921
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$
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60,690,719
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The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
THE INVENTURE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Quarter Ended
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March 29,
2008
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March 31,
2007
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Net revenues
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$
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26,171,075
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$
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16,979,895
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Cost of revenues
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21,096,340
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13,883,336
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Gross profit
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5,074,735
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3,096,559
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Selling, general
and administrative expenses
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3,815,655
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2,907,694
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Operating income
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1,259,080
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188,866
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Interest income
(expense), net
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(552,911
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)
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20,143
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Income before
income tax provision
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706,169
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209,009
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Income tax
provision
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294,873
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103,500
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Net income
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$
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411,296
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$
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105,509
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Earnings per
common share:
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Basic
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$
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0.02
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$
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0.01
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Diluted
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$
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0.02
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$
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0.01
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Weighted average
number of common shares:
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Basic
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18,810,994
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19,302,251
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Diluted
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18,811,208
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19,317,893
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
THE INVENTURE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Quarter Ended
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March 29,
2008
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March 31,
2007
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Cash
flows from operating activities:
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Net income
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$
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411,296
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$
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105,509
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Adjustments to
reconcile net income to net cash provided by (used in) operating activities:
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Depreciation
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691,438
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359,579
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Amortization
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21,360
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1,458
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Provision for
bad debts
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30,502
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(7,464
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)
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Deferred income
taxes
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281,059
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91,013
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Share-based compensation expense
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73,918
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61,516
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Amortization of deferred compensation expense
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11,201
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16,763
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(Gain) loss on
disposition of equipment
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(1,391
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)
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Change in
operating assets and liabilities:
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Accounts
receivable
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(613,440
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280,544
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Inventories
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870,964
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(166,722
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)
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Other assets and
liabilities
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43,108
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(81,099
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Accounts payable
and accrued liabilities
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1,392,254
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(1,000,527
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Net cash
provided by (used in) operating activities
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3,212,269
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(339,430
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)
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Cash
flows from investing activities:
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Purchase of
equipment
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(1,075,043
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)
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(635,159
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)
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Purchase of
short-term investments
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(20,245
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)
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Net cash
provided by (used in) investing activities
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(1,075,043
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)
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(655,404
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)
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Cash
flows from financing activities:
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Line of credit
borrowings (payments), net
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(2,332,411
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)
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Payments made on
long-term debt
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(294,216
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)
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(26,663
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)
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Treasury stock purchases
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(732
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)
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Net cash
provided by (used in) financing activities
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(2,627,359
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)
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(26,663
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)
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Net increase in
cash and cash equivalents
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(490,133
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)
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(1,021,497
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)
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Cash and cash
equivalents at beginning of period
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494,918
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8,671,259
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Cash and cash
equivalents at end of period
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$
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4,785
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$
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7,649,762
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Supplemental
disclosures of cash flow information:
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Cash paid during
the period for interest
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$
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310,413
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$
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77,115
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Supplemental
disclosures of non-cash activities:
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Accrual for
interest expense resulting from interest rate swap
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$
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230,220
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
THE INVENTURE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1.
Organization and Summary of
Significant Accounting Policies:
The
Inventure Group, Inc., (the Company) a Delaware corporation, was formed
in 1995 as a holding company to acquire a potato chip manufacturing and
distribution business, which had been founded by Donald and James Poore in 1986.
The Company changed its name from Poore Brothers, Inc. to The Inventure
Group, Inc. on April 10, 2006.
In December 1996,
the Company completed an initial public offering of its Common Stock. In November 1998,
the Company acquired the business and certain assets (including the Bobs Texas
Style® potato chip brand) of Tejas Snacks, L.P. (Tejas), a Texas-based potato
chip manufacturer. In October 1999, the Company acquired Wabash Foods, LLC
(Wabash) including the Tato Skins®, OBoisies®, and Pizzarias® trademarks and
the Bluffton, Indiana manufacturing operation and assumed all of Wabash Foods
liabilities. In June 2000, the Company acquired Boulder Natural Foods, Inc.
(Boulder) and the Boulder Canyon Natural Foods
TM
brand of totally
natural potato chips. In May 2007, the Company acquired Rader Farms, Inc.
including the Rader Farms® trademark and the Lynden, Washington frozen fruit
processing operation.
In October 2000,
the Company launched its T.G.I. Fridays® brand snacks pursuant to a license
agreement with TGI Fridays Inc., which expires in 2014.
In May 2007, the Company completed the acquisition of Rader Farms, Inc.
for a total cost of $20.9 million. See Note 2 to the Consolidated Financial
Statements for additional information.
In July 2007,
the Company launched its BURGER KING
TM
brand snack products pursuant
to a license agreement with BURGER KING
TM
which expires in 2012.
The Company continues to introduce line extensions
and test market new and innovative snack food products.
Business
The Company is
engaged in the development, production, marketing and distribution of
innovative snack food products and frozen berry products that are sold
primarily through grocery retailers, mass merchandisers, club stores,
convenience stores and vend distributors across the United States. The Company
currently manufactures and sells nationally T.G.I. Fridays® brand snacks under
license from TGI Fridays Inc. and BURGER KING
TM
brand snack
products under license from BURGER KING
TM
. We also distribute
Braids® and pretzels. The Company also currently (i) manufactures and
sells its own brands of snack food products, including Poore Brothers®, Bobs
Texas Style® and Boulder Canyon Natural Foods
TM
brand batch-fried
potato chips and Tato Skins® brand potato snacks, (ii) manufactures
private label potato chips for grocery retail chains in the Southwest and (iii) distributes
in Arizona snack food products that are manufactured by others. The Company
sells its T.G.I. Fridays® brand snack products and BURGER KING
TM
brand snack products to mass merchandisers, grocery, club and drug stores
directly and to convenience stores and vend operators primarily through
independent distributors. The Companys other brands are also sold through
independent distributors.
In addition, with the acquisition of Rader Farms,
the Company grows, processes and markets premium berry blends, raspberries,
blueberries, and rhubarb and purchases marionberries, cherries, cranberries and
strawberries from a select network of fruit growers for resale. The fruit is
processed, frozen and packaged for sale and distribution nationally to
wholesale customers under the Rader Farms® brand, as well as through store
brands.
6
Basis of Presentation
The consolidated financial statements include the
accounts of The Inventure Group, Inc. and all of its wholly owned
subsidiaries. All significant intercompany amounts and transactions have been
eliminated. The financial statements have been prepared in accordance with the
instructions for Form 10-Q and, therefore, do not include all the
information and footnotes required by accounting principles generally accepted
in the United States of America. In the opinion of management, the condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary in order to make the condensed
consolidated financial statements not misleading. A description of the Companys
accounting policies and other financial information is included in the audited
financial statements filed with the Companys Annual Report on Form 10-K
for the fiscal year ended December 29, 2007. The results of operations for
the quarter ended March 29, 2008 are not necessarily indicative of the
results expected for the full year.
Adoption
of New Accounting Pronouncement
In September 2006,
the FASB issued SFAS No. 157,
Fair
Value Measurements
(SFAS No. 157). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. While SFAS No. 157 will not
impact our valuation methods, it will expand our disclosures of assets and
liabilities which are recorded at fair value. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. We adopted SFAS No. 157
effective January 1, 2008 and its adoption did not have a material impact
on our financial position, results of operations and cash flows.
Earnings Per Common Share
Basic earnings per common share is computed by
dividing net income by the weighted average number of shares of Common Stock
outstanding during the period. Exercises of outstanding stock options are
assumed to occur for purposes of calculating diluted earnings per share for
periods in which their effect would not be anti-dilutive. 1,687,500 and
1,427,000 shares of common stock for the quarters ended March 29, 2008 and
March 31, 2007, respectively, were excluded from the computation of
diluted earnings per share because the options exercise prices were greater
than the average market price of common shares and, therefore, the effect would
be anti-dilutive. Earnings per common share was computed as follows for the quarters
ending March 29, 2008 and March 31, 2007:
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Quarter Ended
|
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|
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March 29,
2008
|
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March 31,
2007
|
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Basic
Earnings Per Common Share:
|
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|
|
|
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Net income
|
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$
|
411,296
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$
|
105,509
|
|
|
|
|
|
|
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Weighted average
number of common shares
|
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18,810,994
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|
19,302,251
|
|
|
|
|
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Earnings per
common share
|
|
$
|
0.02
|
|
$
|
0.01
|
|
|
|
|
|
|
|
Diluted
Earnings Per Common Share:
|
|
|
|
|
|
Net income
|
|
$
|
411,296
|
|
$
|
105,509
|
|
|
|
|
|
|
|
Weighted average
number of common shares
|
|
18,810,994
|
|
19,302,251
|
|
Incremental
shares from assumed conversions of stock options and non-vested shares of
restricted stock
|
|
214
|
|
15,642
|
|
Adjusted
weighted average number of common shares
|
|
18,811,208
|
|
19,317,893
|
|
|
|
|
|
|
|
Earnings per
common share
|
|
$
|
0.02
|
|
$
|
0.01
|
|
7
Stock Options, Stock-Based Compensation and Shareholders Equity
The Companys 1995 Stock Option Plan (the 1995 Plan),
as amended, provided for the issuance of options to purchase 3,500,000 shares
of Common Stock. The options granted pursuant to the 1995 Plan expired over a
five-year period and generally vested over three years. In addition to options
granted under the 1995 Plan, the Company also issued non-qualified options
(non-plan options) to purchase Common Stock to certain Directors and Officers
which are exercisable and expire either five years from date of grant. All
options are issued at an exercise price of fair market value of the underlying
common stock on the date of grant and are non-compensatory. The 1995 Plan
expired in May 2005 and was replaced by the Inventure Group, Inc.
2005 Equity Incentive Plan (the 2005 Plan) as described below.
The
2005 Plan expires in May 2015. Awards granted under the 2005 Plan may
include: nonqualified stock options, incentive stock options, restricted stock,
restricted stock units, stock appreciation rights, performance units and
stock-reference awards. If any shares of Common Stock subject to awards granted
under the 1995 Plan or the 2005 Plan are canceled, those shares will be
available for future awards under the 2005 Equity Incentive Plan. As of March 29,
2008, there were 74,365 shares of Common Stock available for Awards under the
2005 Plan.
During
the three months ended March 29, 2008 and March 31, 2007 the total
share-based compensation expense from restricted stock recognized in the
financial statements was $11,906 and $16,763, respectively and is included in
selling, general and administrative expenses. There were no share-based
compensation costs which were capitalized. As of March 29, 2008, the total
unrecognized costs related to non-vested restricted stock awards granted was
$24,234. The Company expects to recognize such costs in the financial
statements over a period of three years.
During
the three months ended March 29, 2008 and March 31, 2007, the Company
recorded $73,918 and $61,516 of share-based compensation expense, respectivley
related to stock options.
The Company estimated the fair value of stock
options issued using the Black-Scholes option pricing model, with the following
assumptions:
|
|
March 29,
2008
|
|
March 31,
2007
|
|
Expected
dividend yield
|
|
0
|
%
|
0
|
%
|
Expected
volatility
|
|
46
|
%
|
50
|
%
|
Risk-free
interest rate
|
|
2 - 3
|
%
|
4 5
|
%
|
Expected life
|
|
1.8 years
|
|
2.4 years
|
|
The
expected dividend yield was based on the Companys expectation of future
dividend payouts. The volatility assumption was based on historical volatility
during the time period that corresponds to the expected life of the option. The
expected life (estimated period of time outstanding) of stock options granted
was estimated based on historical exercise activity. The risk-free interest
rate assumption was based on the interest rate of U.S. Treasuries on the date
the option was granted.
As of March 29,
2008, the amount of unrecognized compensation expense to be recognized over the
next two years, in accordance with SFAS 123R, is approximately $330,000. This
expected compensation expense does not reflect any new awards, or modifications
to existing awards, that could occur in the future. Generally, the Company
issues new shares upon the exercise of stock options as opposed to reissuing
treasury shares.
Stock options become exercisable, based on a three
year vesting schedule, in annual increments of thirty-three percent beginning
one year after grant date and become fully exercisable after three years from
the date of grant. Share-based compensation expense related to stock option
awards is recognized on the straight-line method over the expected life, which
is generally between one and three years.
8
The following table summarizes stock option activity
during the quarter ended March 29, 2008:
|
|
Plan Options
|
|
Non-Plan Options
|
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
Balance,
December 29, 2007
|
|
1,642,500
|
|
$
|
2.73
|
|
45,000
|
|
$
|
3.60
|
|
Granted
|
|
10,000
|
|
$
|
1.83
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Balance,
March 29, 2008
|
|
1,652,500
|
|
$
|
2.72
|
|
45,000
|
|
$
|
3.60
|
|
There were no restricted stock awards granted during
the three months ended March 29, 2008 and March 31, 2007. All
restricted stock awards vest three years from the date of grant. Share-based
compensation expense related to restricted stock awards is recognized on the
straight-line method over the requisite service period, which is approximately
three years, and the related share-based compensation expense is included in
selling, general and administrative expenses.
In August 2007, the Companys Board of Directors
approved a stock re-purchase program whereby up to $3 million of common stock
may be purchased from time to time at the discretion of management. At March 29,
2008 $1,863,115 remained available under the program, which expires August 23,
2008.
Deferred Compensation Plan
Effective January 1, 2007 the Company entered
into a deferred compensation plan. The assets are vested in mutual funds and
are reflected in other current assets and the related obligation is reflected
in accrued liabilities in the balance sheet.
2.
Accrued Liabilities:
Accrued liabilities consisted of the following as of
March 29, 2008 and December 29, 2007:
|
|
March 29,
2008
|
|
December 29,
2007
|
|
Accrued payroll
and payroll taxes
|
|
$
|
955,760
|
|
$
|
1,385,596
|
|
Accrued
royalties and commissions
|
|
590,244
|
|
561,458
|
|
Accrued
advertising and promotion
|
|
999,096
|
|
1,022,639
|
|
Accrued other
|
|
1,555,428
|
|
1,236,385
|
|
|
|
$
|
4,100,528
|
|
$
|
4,206,078
|
|
3.
Inventories:
Inventories consisted of
the following
as of March 29,
2008 and December 29, 2007:
|
|
March 29,
|
|
December 29,
|
|
|
|
2008
|
|
2007
|
|
Finished goods
|
|
$
|
4,448,823
|
|
$
|
3,838,344
|
|
Raw materials
|
|
6,265,810
|
|
7,747,253
|
|
|
|
$
|
10,714,633
|
|
$
|
11,585,597
|
|
9
4.
Goodwill, Trademarks and Other
Intangibles, Net:
Goodwill, trademarks and
other intangibles, net consisted of the following
as of March 29, 2008 and December 29,
2007:
|
|
Estimated
Useful Life
|
|
March 29,
2008
|
|
December 29,
2007
|
|
Goodwill:
|
|
|
|
|
|
|
|
The Inventure
Group, Inc.
|
|
|
|
$
|
5,986,252
|
|
$
|
5,986,252
|
|
Rader
Farms, Inc.
|
|
|
|
5,603,736
|
|
5,603,736
|
|
|
|
|
|
|
|
|
|
Total Goodwill,
net
|
|
|
|
$
|
11,589,988
|
|
$
|
11,589,988
|
|
|
|
|
|
|
|
|
|
Trademarks:
|
|
|
|
|
|
|
|
The Inventure
Group, Inc.
|
|
|
|
1,535,660
|
|
1,535,659
|
|
Rader
Farms, Inc.
|
|
|
|
1,070,000
|
|
1,070,000
|
|
|
|
|
|
|
|
|
|
Other
intangibles:
|
|
|
|
|
|
|
|
Rader -
Covenant-not-to-compete, gross carrying amount
|
|
5 years
|
|
160,000
|
|
160,000
|
|
Rader -
Covenant-not-to-compete, accum. amortization
|
|
|
|
(26,668
|
)
|
(18,667
|
)
|
Rader - Customer
relationship, gross carrying amount
|
|
10 years
|
|
100,000
|
|
100,000
|
|
Rader - Customer
relationship, accum. amortization
|
|
|
|
(27,500
|
)
|
(19,250
|
)
|
|
|
|
|
|
|
|
|
Total Trademarks
and other intangibles, net
|
|
|
|
$
|
2,811,492
|
|
$
|
2,827,742
|
|
Amortization
expense for the quarters ended March 29, 2008 and March 31, 2007 were
$21,360 and $1,458, respectively. As of December 29, 2007, we expect
amortization expense on these intangible asset over the next five years to be
as follows:
2008
|
|
$
|
42,000
|
|
2009
|
|
$
|
42,000
|
|
2010
|
|
$
|
42,000
|
|
2011
|
|
$
|
42,000
|
|
2012
|
|
$
|
23,333
|
|
Goodwill and trademarks are reviewed for impairment
annually in the second fiscal quarter, or more frequently if impairment
indicators arise. Goodwill is required to be tested for impairment between the
annual tests if an event occurs or circumstances change that
more-likely-than-not reduces the fair value of a reporting unit below its
carrying value. Intangible assets with indefinite lives are required to be
tested for impairment between the annual tests if an event occurs or
circumstances change indicating that the asset might be impaired. The carrying
values were not impaired as of March 29, 2008.
10
5.
Long-Term Debt:
Long-term debt consisted of the following as of March 29, 2008 and
December 29, 2007:
|
|
March 29,
|
|
December 29,
|
|
|
|
2008
|
|
2007
|
|
Mortgage loan
due monthly through July, 2012; interest at 9.03%; collateralized
by land and building in Goodyear, AZ
|
|
$
|
1,620,076
|
|
$
|
1,633,771
|
|
Mortgage loan
due monthly through December, 2016; interest rate at 30 day LIBOR plus
165 basis points, fixed through a swap agreement to 6.85%; collateralized by
land and building in Bluffton, IN
|
|
2,329,559
|
|
2,344,220
|
|
Equipment term
loan due monthly through May, 2104; interest at LIBOR plus 165
basis points; collateralized by equipment at Rader Farms in Lynden, WA
|
|
5,357,143
|
|
5,571,429
|
|
Real Estate term
loan due monthly through July, 2017; interest at LIBOR plus 165
basis points; secured by a leasehold interest in the real property
|
|
3,899,061
|
|
3,937,763
|
|
Vehicle term
loan and capital leases due in various monthly installments through February,
2011; collateralized by vehicles
|
|
127,216
|
|
140,088
|
|
|
|
13,333,055
|
|
13,627,271
|
|
Less current
portion of long-term debt
|
|
(1,187,650
|
)
|
(1,181,888
|
)
|
Long-term debt,
less current portion
|
|
$
|
12,145,405
|
|
$
|
12,445,383
|
|
To fund the acquisition
of Rader Farms, the Company entered into a Loan Agreement (the Loan Agreement)
with U.S. Bank National Association (U.S. Bank). Each of our subsidiaries is
a guarantor of the Loan Agreement, which is secured by a pledge of all of the
assets of our consolidated group. The borrowing capacity available to us under
the Loan Agreement consists of notes representing:
·
a
$15,000,000 revolving line of credit maturing on June 30, 2011; $5,119,898
outstanding at March 29, 2008. Based on eligible assets, the amount
available under the line of credit was $3,964,702 at March 29, 2008. As defined
in the revolving credit facility note, all
borrowings under the revolving line of credit will bear interest at either (i) the
prime rate of interest announced by U.S. Bank from time to time or (ii) LIBOR
plus the LIBOR Rate Margin.
·
Equipment
term loan due May 2014 noted above.
·
Real
estate term loan due July, 2017 noted above.
U.S.
Bank may terminate its commitments and accelerate the repayment of amounts
outstanding and exercise other remedies upon the occurrence of an event of
default (as defined in the Loan Agreement), subject, in certain instances, to
the expiration of an applicable cure period. The agreement requires the Company
to maintain compliance with certain financial covenants, including a minimum
tangible net worth, a minimum fixed charge coverage ratio and a minimum current
ratio. At March 29, 2008, the Company was in compliance with all of the
financial covenants. Deferred financing fees totaling $119,774, which are
included in Other Assets, were recorded in connection with the Loan Agreement
and are being amortized over the life of the loan.
Interest Rate Swaps
The
Company entered into an interest rate swap in December 2006 to effectively
convert the interest rate of the mortgage to purchase the Bluffton, IN plant to
a fixed rate of 6.85%. The swap is not
accounted for as a cash flow hedge, and as result, unrealized gains and losses
are recorded in the Companys consolidated statement of income. The swap has a fixed pay-rate of 6.85% and a
notional amount of $2.43 million at March 29, 2008 and expires in
December, 2016. The value of the swap is
recorded as a $230,220 liability at March 29, 2008.
The
Company entered into another interest rate swap in January 2008 to
effectively convert the interest rate of the real estate term loan to a fixed
rate of 4.28%. The interest rate swap is
structured with a decreasing notional amounts to match the expected pay down of
the debt. The notional value of the swap
at March 29, 2008 was $3.9 million.
The interest rate swap is effective though March 29, 2008 and is
accounted for as a cash flow hedge derivative.
We evaluate the effectiveness of the hedge on a quarterly basis.
During the three months ended March 29, 2008 the hedge is highly
effective.
11
The
interest rate swap had a negative fair value of $141,810 at March 29, 2008
and was recorded in Accumulated other comprehensive income. This value was determined in accordance with
SFAS No. 157 using Level 2 observable inputs and approximates the net loss
that would have been realized if the contract had been settled on March 29,
2008.
6
.
Litigation:
The
Company is periodically a party to various lawsuits arising in the ordinary
course of business. Management believes,
based on discussions with legal counsel, that the resolution of such lawsuits,
individually and in the aggregate, will not have a material adverse effect on
the Companys financial position or results of operations.
7.
Business
Segments:
The Companys operations
consist of three reportable segments: manufactured products, berry products and
distributed products. The manufactured
products segment produces potato chips, potato crisps and potato skins for sale
primarily to snack food distributors and retailers. The berry products segment produces frozen
berries for sale primarily to groceries and mass merchandisers. The distributed products segment sells snack
food products manufactured by other companies to the Companys Arizona snack
food distributors. The Companys
reportable segments offer different products and services. The majority of the Companys revenues are
attributable to external customers in the United States. The Company does sell to customers in Canada,
The United Kingdom and Mexico as well, however the revenues attributable to
those customers is immaterial. All of
the Companys assets are located in the United States. The Company does not allocate any assets to
the distributed products segment.
The accounting
policies of the segments are the same as those described in the Summary of
Significant Accounting Policies (Note 1).
The Company does not allocate assets, selling, general and
administrative expenses, income taxes or other income and expense to segments.
|
|
Manufactured
Snack
Products
|
|
Berry
Products
|
|
Distributed
Products
|
|
Consolidated
|
|
Quarter
ended March 28, 2008
|
|
|
|
|
|
|
|
|
|
Net revenues
from external customers
|
|
$
|
15,565,959
|
|
$
|
9,614,514
|
|
$
|
990,602
|
|
$
|
26,171,075
|
|
Depreciation and
amortization included in segment gross profit
|
|
242,543
|
|
275,376
|
|
|
|
517,919
|
|
Segment gross
profit
|
|
3,060,476
|
|
1,863,275
|
|
150,984
|
|
5,074,735
|
|
Goodwill
|
|
5,986,252
|
|
5,603,736
|
|
|
|
11,589,988
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
Net revenues
from external customers
|
|
$
|
16,295,904
|
|
|
|
$
|
683,993
|
|
$
|
16,979,897
|
|
Depreciation and
amortization included in segment gross profit
|
|
216,958
|
|
|
|
|
|
216,958
|
|
Segment gross
profit
|
|
2,997,230
|
|
|
|
99,329
|
|
3,096,559
|
|
Goodwill
|
|
5,986,252
|
|
|
|
|
|
5,986,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following table
reconciles reportable segment gross profit to the Companys consolidated income
before income tax benefit (provision) for the quarters ended March 29,
2008 and March 31, 2007:
|
|
March 29, 2008
|
|
March 31, 2007
|
|
Segment gross
profit
|
|
$
|
5,074,735
|
|
$
|
3,096,559
|
|
Unallocated
amounts:
|
|
|
|
|
|
Operating
expenses
|
|
(3,815,655
|
)
|
(2,970,694
|
)
|
Interest income
(expense), net
|
|
(552,911
|
)
|
20,143
|
|
Income before
income taxes
|
|
$
|
706,169
|
|
$
|
209,009
|
|
8.
Income Taxes:
The
Company has recorded a deferred tax asset of $664,333 reflecting the benefit of
approximately $1.2 million in loss carryforwards. Such deferred tax assets expire between 2018
and 2025. Realization of the tax benefit is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced
. The Company also has an alternative minimum
tax (AMT) credit carryforward for federal income tax purposes of $31,390 at March 29,
2008.
Generally accepted
accounting principles require that a valuation allowance be established when it
is more-likely-than-not that all or a portion of a deferred tax asset will not
be realized. Changes in valuation allowances
from period to period are included in the tax provision in the period of
change. In determining whether a
valuation allowance is required, the Company takes into account all positive
and negative evidence with regard to the utilization of a deferred tax asset
including our past earnings history, expected future earnings, the character
and jurisdiction of such earnings, unsettled circumstances that, if unfavorably
resolved, would adversely affect utilization of a deferred tax asset, carryback
and carryforward periods and tax strategies that could potentially enhance the
likelihood of realization of a deferred tax asset. The Company provides for income taxes at a
rate equal to the combined federal and state effective rates, which approximated
39% under current tax rates.
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly
Report on Form 10-Q, including all documents incorporated by reference,
includes forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the Securities Act), Section 21E
of the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, and The Inventure Group, Inc. (the Company)
desires to take advantage of the safe harbor provisions thereof. Therefore, the Company is including this
statement for the express purpose of availing itself of the protections of the
safe harbor with respect to all of such forward-looking statements. In this
Quarterly Report on Form 10-Q, the words anticipates, believes, expects,
intends, estimates, projects, will likely result, will continue, future
and similar terms and expressions identify forward-looking statements. The
forward-looking statements in this Quarterly Report on Form 10-Q reflect
the Companys current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including specifically the possibility that the Company will
need additional financing due to future operating losses or in order to
implement the Companys business strategy, the possible diversion of management
resources from the day-to-day operations of the Company as a result of
strategic acquisitions, potential difficulties resulting from the integration
of acquired businesses with the Companys business, other acquisition-related
risks, lack of consumer acceptance of existing and future products, dependence
upon key license agreements, dependence upon major customers, significant
competition, risks related to the food products industry, volatility of the
market price of the Companys common stock, par value $.01 per share (the Common
Stock), the possible de-listing of the Common Stock from the Nasdaq SmallCap
Market if the Company fails to satisfy the applicable listing criteria
(including a minimum share price) in the future and those other risks and
uncertainties discussed herein, that could cause actual results to differ
materially from historical results or those anticipated. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information contained in
this Quarterly Report on Form 10-Q will in fact transpire or prove to be
accurate. Readers are cautioned to
consider the specific risk factors described herein and in Risk Factors in
the Company Annual Report pn Form 10-K for thr fiscal year ended December 29,
2007 and not to place undue reliance on the forward-looking statements
contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that may arise after the date hereof. All
subsequent written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by this section.
13
Results of Operations
Quarter ended March 29,
2008 compared to the quarter ended March 31, 2007
Net revenues for the first quarter of fiscal 2008
were $26.2 million, 54% higher than last years first quarter net revenues of
$17.0 million. This increase was
primarily attributable $9.6 million of berry products net revenues that
occurred in 2008. No such net revenues
occurred in the first quarter of fiscal 2007 because these net revenues are the
result of the Company acquiring Rader Farms in May 2007. The overall increase in net revenues was
slightly offset by a decrease in net revenues of the Companys manufactured
snack products of $0.4 million, which was primarily caused by an overall
decrease in T.G.I. Fridays® brand salted snack net revenues.
Gross profit for the quarter ended March 29,
2008 increased 64% or 2.0 million as compared to March 31, 2007 and also
increased as a percentage of net revenues (19.4% of net revenue at 2008 and
18.2% of net revenue in 2007). This
resultant increase in percentage is primarily due to the addition of the berry
products division, which generated a 19.4% gross profit during the quarter.
Selling, general and administrative expenses were
$3.8 million in the first quarter of 2008 as compared to $2.9 million in the
first quarter of 2007. Again, the
overall increase is primarily due to the addition of the berry products
division, which was acquired during the second quarter of 2007. As a percentage of net revenues, these
expenses decreased to 14.5% of net revenues as compared to 17.1% of net
revenues in the first quarter of 2007.
This decrease is largely attributable to the addition of the berry
products division, which did not require a commensurate increase in selling,
general and administrative expenses.
Net interest expense was $552,911 in the first
quarter of 2008 compared to net interest income of $20,143 in the first quarter
of 2007 due primarily to increased interest expense resulting from the
acquisition of Rader Farms in May, 2007.
Additionally, the Company recognized $230,220 of interest expense as a result
of an interest rate swap; no similar expense was incurred in the first quarter
of 2007.
Net income was $0.4 million,
or $0.02 per basic and diluted share, compared to net income of $0.1 million,
or $0.01 per basic and diluted share last year.
Liquidity and Capital Resources
Net working capital was $3.7
million (a current ratio of 1.2:1) at March 29, 2008 and $3.6 million (a
current ratio of 1.2:1) at December 29, 2007. For the quarter ended March 29, 2008,
the Company generated cash flow of $3.2 million from operating activities,
invested $1.1 million in equipment and utilized $2.6 million to pay down its
line of credit and other debt. For
quarter ended March 31, 2007, the Company used cash flow of $0.3 million
in its operating activities and invested $0.7 million in new equipment.
The Companys Goodyear, Arizona manufacturing and
distribution facility is subject to a $1.6 million mortgage loan from Morgan
Guaranty Trust Company of New York, bears interest at 9.03% per annum and is
secured by the building and the land on which it is located. The loan matures
on July 1, 2012; however monthly principal and interest installments of
$16,825 are determined based on a twenty-year amortization period.
The Companys Bluffton, Indiana manufacturing and
distribution facility was purchased for $3.0 million in December, 2006. The
facility is subject to a $2.3 million mortgage loan from U.S. Bank National
Association, bears interest at the 30 day LIBOR plus 165 basis points and is
secured by the building and the land on which it is located. The interest rate
associated with this debt instrument was fixed to 6.85% via an interest rate
swap agreement with U.S. Bank National Association in December 2006. The loan matures in December, 2016; however
monthly principal and interest installments of $18,392 are determined based on
a twenty-year amortization period.
14
To
fund the acquisition of Rader Farms the Company entered into a Loan Agreement
(the Loan Agreement) with U.S. Bank National Association (U.S. Bank). Each
of our subsidiaries is a guarantor of the Loan Agreement, which is secured by a
pledge of all of the assets of our consolidated group. The borrowing capacity
available to us under the Loan Agreement consists of notes representing:
·
a $15,000,000 revolving line of credit
maturing on June 30, 2011; based on asset eligibility, there was $3.9
million of borrowing availability under the line of credit at March 29,
2008.
·
an equipment term loan, secured by the
equipment acquired, subject to a $5.8 million mortgage loan from U.S. Bank
National Association, bears interest at the 30 day LIBOR plus 165 basis points.
The loan matures in May, 2014 and monthly principal installments are $71,429
plus interest and
·
a real estate term loan, secured by a
leasehold interest in the real property we are leasing from the former owners
of Rader Farms in connection with the Acquisition, subject to a $4.0 million
real estate term loan from U.S. Bank National Association, bears interest at
the 30 day LIBOR plus 165 basis points.
The
interest rate associated with this debt instrument was fixed to 4.28% via an
interest rate swap agreement with U.S. Bank National Association in January 2008.
The loan matures in July, 2017; however
monthly principal and interest installments of $36,357 are determined based on
a fifteen-year amortization period.
All borrowings under the revolving line of credit
will bear interest at either (i) the prime rate of interest announced by
U.S. Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (as
defined in the revolving credit facility note). The term loan will bear
interest at LIBOR, plus the LIBOR Rate Margin (as defined in the term loan
note).
As is customary in such financings, U.S. Bank may
terminate its commitments and accelerate the repayment of amounts outstanding
and exercise other remedies upon the occurrence of an event of default (as
defined in the Loan Agreement), subject, in certain instances, to the
expiration of an applicable cure period. The agreement requires the Company to
maintain compliance with certain financial covenants, including a minimum
tangible net worth, a minimum fixed charge coverage ratio and a debt to equity
ratio. At March 29, 2008, the Company was in compliance with all of the
financial covenants.
At March 29, 2008,
the Company had a net operating loss carryforward available for federal income
taxes of approximately $1.2 million. The
Companys accumulated net operating loss carryforward will begin to expire in
2018.
Interest Rate Swap
The
Company entered into an interest rate swap in December 2006 to effectively
convert the interest rate of the mortgage to purchase the Bluffton, IN plant to
a fixed rate of 6.85%. The swap is not
accounted for as a cash flow hedge, and as result, unrealized gains and losses
are recorded in the Companys consolidated statement of income. The swap has a fixed pay-rate of 6.85% and a
notional amount of $2.43million at March 29, 2008 and expires in December,
2016. The value of the swap is recorded
as a $230,220 liability at March 29, 2008.
The
Company entered into another interest rate swap in January 2008 to
effectively convert the interest rate of the real estate term loan to a fixed
rate of 4.28%. The interest rate swap is
structured with a decreasing notional amounts to match the expected pay down of
the debt. The notional value of the swap
at March 29, 2008 was $3.9 million.
The interest rate swap is effective though March 29, 2008 and is
accounted for as a cash flow hedge derivative.
We evaluate the effectiveness of the hedge on a quarterly basis.
During the three months ended March 29, 2008 the hedge is highly
effective and a net unrealized loss of $141,810 was recorded in Accumulated
other comprehensive income.
Contractual Obligations
The Companys future
contractual obligations consist principally of long-term debt, operating
leases, minimum commitments regarding third party warehouse operations
services, remaining minimum royalty payments due licensors pursuant to brand
licensing agreements and severance charges to terminated executives. As of March 29, 2008 there have been no
material changes to the Companys contractual obligations since its December 29,
2007 fiscal year end, other than scheduled payments. The Company currently has no material
marketing or capital expenditure commitments.
15
Managements Plans
In connection with the implementation of the Companys
business strategy, the Company may incur operating losses in the future and may
require future debt or equity financings (particularly in connection with
future strategic acquisitions, new brand introductions or capital
expenditures). Expenditures relating to
acquisition-related integration costs, market and territory expansion and new
product development and introduction may adversely affect promotional and
operating expenses and consequently may adversely affect operating and net
income. These types of expenditures are
expensed for accounting purposes as incurred, while revenue generated from the
result of such expansion or new products may benefit future periods. Management believes that the Company will
continue to generate positive cash flow from operations during the next twelve
months, which, along with its existing working capital and borrowing
facilities, will enable the Company to meet its operating cash requirements for
the next twelve months. This belief is
based on current operating plans and certain assumptions, including those
relating to the Companys future revenue levels and expenditures, industry and
general economic conditions and other conditions. If any of these factors change, the Company
may require future debt or equity financings to meet its business requirements.
There can be no assurance that any required financings will be available or, if
available, on terms attractive to the Company.
Critical Accounting Policies and Estimates
The Securities and
Exchange Commission indicated that a critical accounting policy is one which
is both important to the portrayal of the Companys financial condition and
results and requires managements most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
The Company believes that the following accounting policies fit this
definition:
Allowance
for Doubtful Accounts.
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
Inventories.
The Companys inventories are stated at the
lower of cost (first-in, first-out) or market.
The Company identifies slow moving or obsolete inventories and estimates
appropriate loss provisions related thereto.
If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
Goodwill
and Trademarks.
Goodwill and trademarks are reviewed for impairment annually, or more
frequently if impairment indicators arise.
Goodwill is required to be tested for impairment between the annual
tests if an event occurs or circumstances change that more-likely-than-not
reduce the fair value of a reporting unit below its carrying value. Intangible assets with indefinite lives are
required to be tested for impairment between the annual tests if an event
occurs or circumstances change indicating that the asset might be
impaired. During 2007, the Company
determined the carrying values of two trademarks were impaired following the
completion of a discounted cash flow analysis and recorded a $2.7 million
charge as a result. The Company believes
the carrying values are appropriate after recognition of the trademark
impairment. Further discussion of goodwill and trademarks is expanded upon
below:
·
The
Companys Bobs Texas Style potato chip brand was acquired in 1998 when the business
of Tejas Snacks, L.P. was acquired. Following a trademark impairment charge of
$0.9 million recorded in 2007, the Bobs Texas Style trademark has a carrying
value of approximately $0.3 million.
·
The
Companys Tato Skins potato chip brand was acquired in 1999 when the business
of Wabash Foods was acquired. Following
an impairment charge if $1.8 million recorded in 2007, the Wabash - Tato Skins
trademark has a carrying value of approximately $0.4 million.
·
The
Companys Boulder Canyon potato chip brand was acquired in 2000 when the
business of Boulder Natural Foods, Inc. was acquired. The Boulder Canyon
trademark has a carrying value of $0.9 million.
·
The
Companys Rader Farms frozen berry brand was acquired in 2007 when the business
of Rader Farms was acquired. The acquisition resulted in Goodwill of $5.6
million and trademarks of $1.1 million, which remain the carrying values at March 29,
2008.
16
In determining that each
of these trademarks has an indefinite life, management considered the factors
found in paragraph 11 of SFAS No. 142. Management believes that each of
these trademarks has the continued ability to generate cash flows indefinitely.
Managements determination that these trademarks have indefinite lives includes
an evaluation of historical cash flows and projected cash flows for each of
these trademarks. The Company continues making investments to market and
promote each of these brands, and management continues to believe that the market
opportunities and brand extension opportunities will generate cash flows for an
indefinite period of time. In addition, there are no legal, regulatory,
contractual, economic or other factors to limit the useful life of these
trademarks, and management intends to renew each of these trademarks, which can
be accomplished at little cost.
The Company recorded
goodwill for each of the four acquisitions noted above. The three acquired
potato chip businesses were fully integrated into and are included in the Companys
Branded Snack Products business segment.
The Rader Farms frozen berry business is included in the Companys Berry
Products business segment.
Advertising
and Promotional Expenses and Trade Spending.
The Company expenses production costs of advertising
the first time the advertising takes place, except for cooperative advertising
costs which are expensed when the related sales are recognized. Costs associated with obtaining shelf space
(i.e., slotting fees) are accounted for as a reduction of revenue in the
period in which such costs are incurred by the Company. Anytime the Company offers consideration
(cash or credit) as a trade advertising or promotional allowance to a purchaser
of products at any point along the distribution chain, the amount is accrued
and recorded as a reduction in revenue.
Marketing programs that deal directly with the consumer, primarily
consisting of in-store demonstrations/samples and a sponsorship with a
professional baseball team, are recorded as a marketing expense in selling,
general and administrative expenses.
Further discussion of these marketing programs is expanded upon below:
·
Demonstrations/Samples:
The Company periodically arranges in-store
product demonstrations with club stores (i.e. Sams, Costco or BJs) or grocery
retailers. Product demonstrations are
conducted by independent third party providers designated by the various
retailer or club chains. During the
in-store demonstrations the consumers in the stores receive small samples of
our products, and consumers are not required to purchase our product in order
to receive the sample. The cost of product used in the demonstrations, which is
insignificant, and the fee we pay to the independent third party providers who
conduct the in-store demonstrations are recorded as a sales and marketing
expense in selling, general and administrative expenses. When we conduct
in-store product demonstrations, we do not pay or give any consideration to the
club stores or grocery retailers in which the demonstrations occur.
·
Sponsorship:
The Company has one sponsorship with the
Arizona Diamondbacks Major League Baseball team which takes place during their
baseball season. We do not sell product to the Arizona Diamondbacks, and the
sponsorship clearly involves an identifiable benefit to us as the fans at the
stadium see our name on the main scoreboard during each game. The value is
reasonably estimated due to the fact that the team charges us a fixed amount
per game which we record as a sales and marketing expense in selling, general
and administrative expenses.
Income
Taxes.
The Company has
been profitable since 1999; however, it experienced significant net losses in
prior fiscal years resulting in a net operating loss (NOL) carryforward for
federal income tax purposes of approximately $1.2 million at March 29,
2008. Generally accepted accounting
principles require that the Company record a valuation allowance against the
deferred tax asset associated with this NOL if it is more likely than not
that the Company will not be able to utilize it to offset future taxes. No valuation allowance was required at March 29,
2008.
Stock-Based Compensation
.
On January 1,
2006, we adopted Statement of Financial Accounting Standards (SFAS) 123R,
Share-Based
Payment
,
under the modified
prospective method. SFAS 123R requires
us to measure the cost of employee services received in exchange for stock
options granted using the fair value method as of the beginning of 2006.
We account for our stock options under the fair value
method of accounting using a Black-Scholes valuation model to measure stock
option fair values at the date of grant. All stock option grants have a 5-year
term. The fair value of stock option grants is amortized to expense over the
vesting period, generally three years for employees and one year for the Board
of Directors.
The above listing is not
intended to be a comprehensive list of all of the Companys accounting
policies. In many cases the accounting
treatment of a particular transaction is specifically dictated by generally
accepted accounting principles, with no need for managements judgment in their
application. See the Companys audited
financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the fiscal year ended December 29, 2007 which
contains accounting policies and other disclosures required by accounting
principles generally accepted in the United States.
17
New Accounting Policies
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS No. 159 allows entities to choose
to measure eligible financial instruments at fair value with changes in fair
value recognized in earnings of each subsequent reporting date. The fair value election is available for most
financial assets and liabilities on an instrument-by-instrument basis and is to
be elected on the date the financial instrument is initially recognized. SFAS 159 is effective for all entities as of
the beginning of a reporting entitys first fiscal year that begins after November 15,
2007 (with earlier application permitted under certain circumstances). The adoption of SFAS No. 159 had no
impact on the Companys financial position or statement of operations.
In December 2007,
the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS No. 141(R)),
which replaces SFAS No. 141,
Business
Combinations
. SFAS No. 141(R) retains the underlying
concepts of SFAS No. 141 that require all business combinations to be
accounted for at fair value under the acquisition method of accounting,
however, SFAS No. 141(R) significantly changes certain aspects of the
prior guidance including: (i) acquisition-related costs, except for those
costs incurred to issue debt or equity securities, will no longer be
capitalized and must be expensed in the period incurred; (ii) non-controlling
interests will be valued at fair value at the acquisition date; (iii) in-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date; (iv) restructuring costs
associated with a business combination will no longer be capitalized and must
be expensed subsequent to the acquisition date; and (v) changes in
deferred tax asset valuation allowances and income tax uncertainties after the
acquisition date will no longer be recorded as an adjustment of goodwill,
rather such changes will be recognized through income tax expense or directly
in contributed capital. SFAS 141(R) is effective for all business
combinations having an acquisition date on or after the beginning of the first
annual period subsequent to December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax
contingencies.
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
This information has been omitted pursuant to Item
305(e) of Regulation S-K, promulgated under the Securities Act of 1933, as
amended.
Item 4. Controls and Procedures
(a)
Evaluation of Disclosure Controls
and Procedures
The Companys management, with the participation of
its Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Companys disclosure controls and procedures as of the end
of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures as of the end of the period covered by this report have been
designed and are functioning effectively to provide reasonable assurance that
the information required to be disclosed by the Company in reports filed under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time period specified in the SECs rules and forms.
The Companys Chief
Executive Officer and Chief Financial Officer do not expect that the Companys
internal controls will prevent all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of internal controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the
Company have been detected. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that internal controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
(b)
Change in Internal Control over
Financial Reporting
No change in the Companys internal control over
financial reporting occurred during the Companys most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
18
Part II.
Other Information
Item 1.
Legal
Proceedings
The Company is periodically a party to
various lawsuits arising in the ordinary course of business. Management believes, based on discussions
with legal counsel, that the resolution of such lawsuits, individually and in
the aggregate, will not have a material adverse effect on the Companys
financial position or results of operations.
Item 1A. Risk Factors
During the quarter ended March 29, 2008, there
were no material changes from the risk factors as previously disclosed in the
Companys Annual Report on Form 10-K for the fiscal year ended December 29,
2007.
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
Item 5.
Other Information
None.
Item 6.
Exhibits
(a)
Exhibits:
31.1 Certification of
Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
31.2 Certification of
Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
32.1 Certification of
Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
19
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: May 12, 2008
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THE INVENTURE GROUP, INC.
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By:
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/s/ Eric J. Kufel
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Eric J. Kufel
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Chief Executive Officer
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(Principal Executive Officer)
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20
EXHIBIT INDEX
31.1
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) or Rule 15(d)-14(a).
|
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31.2
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Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) or Rule 15(d)-14(a).
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32.1
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Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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21
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